Downgrade Backs Up BMI's Long-Held Caution

Our long-held view that Bahrain's fiscal and financial troubles had not been fully priced into bond yields has been given added weight today, at least in the eyes of the market, with news that Moody's has downgraded the country's long-term foreign currency rating from A2 to A3. The agency cited a 'gradual but significant rise in the breakeven oil price in the Bahraini budget'. BMI first predicted the drastic decline in Bahrain's fiscal circumstances in March 2009 (see our online service, 26 March 2009, Budget Approved, Big Deficit Ahead). Given the extent of the oil price recovery in

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